Mikulski offers plan to revive the nation's auto industry

State's dealers hail proposal to make loan interest tax-deductible

"Our number one goal is to make sure our employees have a job," says Sam Weaver Jr. of Chevy Chase Cars in Bethesda, here showing Sen. Barbara A. Mikulski a new model in his showroom Wednesday.

With the U.S. auto industry staggering, Maryland dealers are applauding a proposal by Sen. Barbara A. Mikulski to help shore up weak sales by allowing consumers to deduct sales taxes and loan interest when they purchase new vehicles through 2009.

Mikulski (D) of Baltimore said at a news conference Nov. 12 at Chevy Chase Cars of Bethesda that she planned to introduce the legislation this week, when the Senate reconvenes.

"There is strong bipartisan interest in supporting this," Mikulski said. "I am not happy with how the [$700 billion financial-market] rescue package has worked. … It's time to help the minnows."

Any such aid would be greatly appreciated, said Sam Weaver Jr., an executive with Chevy Chase Cars. Sales at his dealerships, which include Acura and Chevrolet, are down about 23 percent this year from last year, he said.

Chevy Chase Cars has trimmed some costs, including eliminating a few support jobs, but executives want to make sure the positions of their primary 140 employees are secure, Weaver said.

"Our number one goal is to make sure our employees have a job," he said. "We support 500 to 600 people when you include our employees' families."

About 500 jobs have been lost in Maryland — and 110,000 nationwide — this year due to the closing of auto dealerships, Mikulski said. The average employee at a Maryland dealership makes $49,397 a year, above the national average of $48,339, according to the National Automobile Dealers Association of McLean, Va.

Last year, Maryland new-car dealerships had sales of about $13.4 billion, some 20 percent of the total retail sales in the state, according to the national trade group. Auto sales nationally of $693 billion constituted about 18 percent of total retail sales.

General Motors, which saw a 45 percent decline in U.S. sales in October from its 2007 numbers, and other struggling automakers are banking on a separate proposal: $25 billion in loans that the federal government has promised them to develop technology that increases fuel mileage. But the additional help on the consumer side is needed to boost actual sales, said Peter Kitzmiller, president of the Maryland Automobile Dealers Association.

The $700 billion financial-market bailout will free up credit to some extent, he said. "But consumers need more direct help," Kitzmiller said.

Automakers and congressional Democrats are also pushing the Bush administration to lend the Bi Three an additional $25 billion to help cover operating expenses.

GM and other auto executives said October sales nationally saw double-digit percentage declines from a year ago. The industry total was the lowest sales volume for any month since 1992, according to Santa Monica, Calif., auto information company Edmunds.

In Maryland, overall auto sales are probably down about 12 percent through October from last year, Kitzmiller said.

"It's as bad as it's been for a long time," he said. "We were having a slow year before October, but it certainly became slower in the last six weeks."

Several Maryland auto dealerships have gone out of business this year, but not all were hurt by the stock-market meltdown that began in September, Kitzmiller said. "Consolidation is going on among domestic manufacturers," he said. "It's a very mature market."

In recent months, dealers have worked to cut costs, including imposing hiring freezes, Kitzmiller said. "We hope by the middle of next year that things will turn around," he said. "There is pent-up demand and some great deals for buyers."

Dealers are also giving buyers more in incentives, Edmunds executives said. The average manufacturer incentive nationally last month was $2,648 per vehicle, up $471, or 21.6 percent, from October 2007.

Making interest tax-deductible

Under federal law, the interest on a vehicle loan is not tax-deductible. Mikulski's proposal would change that for new cars purchased between Nov. 12, 2008, and Dec. 31, 2009, with loans of less than $49,500.

The deduction would be allowed for families making less than $250,000 annually, and individuals pulling in less than $125,000, whether they itemize or not. A family would save about $1,553 on a $25,000 car and about $2,500 on a $35,000 car, Mikulski said.

The deduction would apply to purchases of both foreign and domestic new cars.

Hopefully, legislators can pass the deduction stimulus in time to take effect before the end of the year, said Annette Sykora, chairwoman of the national auto group and a dealer in Texas who appeared with Mikulski. "November and December are one of our biggest demand times," she said.

The auto industry trickles into other industries such as grocery-store retail and financial services, said Fred Swanner, president of United Auto Workers Local 239 in Baltimore. "It's not just blue-collar jobs, but white-collar jobs, that are impacted," he said.

While the auto sales decline is fueled partly by potential buyers believing they can't get a loan, Maryland dealers have plenty of consumer credit access, Kitzmiller said.

"It may have become a little bit tougher to qualify for a loan," he said. "But buyers still can get financing."